INDIRECT TAXES AMENDMENTS (Relevant for Nov. 2011)

Transcription

1 INDIRECT TAXES AMENDMENTS (Relevant for Nov. 2011) CA. Krishna Shankar Prasad ICAI Faculty Member AMENDMENTS IN EXCISE CENVAT CREDIT RULES, 2004 Capital Goods [Rule 2(a)] :- Capital Goods means, (A) All goods falling under Chapter 82, Chapter, 84, Chapter 85, Chapter 90, heading no and heading no of the First Schedule to the Central Excise Tariff Act, 1985; (ii) (iii) (iv) (v) (vi) Pollution control equipment; Components, spares and accessories of the goods specified at and (ii) above; Moulds and dies, jigs and fixtures; Refractories and refractory materials; Tubes and pipes and fittings thereof; and (vii) Storage tank, used (1) in the factory of the manufacturer of the final products (but does not include any equipment or appliance used in an office) or (1A) outside the factory of the manufacturer of final products, for generation of electricity for captive use within the factory; or [w.e.f ] (2) for providing output service. (B) Motor vehicle registered in the name of provider of output service for providing the following taxable services which are Courier Agency, Tour operator, Rent a cab scheme, Cargo handling agency, Goods transport agency, Outdoor caterer and Pandal and shamiana contractor.

2 (C) Dumpers or tippers, falling under Chapter 87 of First Schedule to Central Excise Tariff Act, 1985, registered in the name of provider of output service for providing following taxable services : (1) Site formation and clearance, excavation and earthmoving and demolition and such other similar services; and (2) Mining of mineral, oil or gas Service. [w.e.f ] (D) Components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide taxable services as specified in sub-clauses (B) and (C). [w.e.f ] Exempted Goods Exempted Goods means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to Nil rate of duty and goods in respect of which the benefit of an exemption under notification No. 1/2011-CE, dated the 1st March, 2011 is availed. [w.e.f ]. Exempted Services Exempted Services means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under Section 66 of the Finance Act and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken (i.e., taxable services in respect of which abatement in value is available) [w.e.f ]; and also includes trading. Input [Rule 2(k)] (Substituted w.e.f ) Input means (ii) all goods used in the factory by the manufacturer of the final product; or (a) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and (b) goods used for providing free warranty for final products; or (iii) (iv) all goods used for generation of electricity or steam for captive use; or all goods used for providing any output service; KSP Classes; PH : , [ Amendment Page - 2]

3 but excludes (A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; (B) any goods used for (a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structure for support of capital goods, except for the provision of any taxable service specified in Port Services, Other Port Services, Airport Services, Commercial or Industrial Construction Service, Construction of Complex Service and Works Contract Service. (C) capital goods except when used as parts or components in the manufacture of a final product; (D) motor vehicles; (E) (F) any goods, such as food items, (ii) goods used in a guest house, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and any goods which have no relationship whatsoever with the manufacture of a final product. Explanation :- Free warranty means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer. Input Service [Rule 2(l)], [Substituted w.e.f ] Input service means any service (ii) used by a provider of taxable service for providing an output service; or used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal. and includes services used in relation to :- (a) (b) modernisaiton, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, (c) market research, (d) storage up to the place of removal, (e) procurement of inputs, (f) accounting, (g) auditing, (h) financing, credit rating, (j) recruitment and quality control, (k) computer networking, (l) credit rating, (m) share registry, (n) security, (o) business exhibition, (p) legal services, (q) (r) inward transportation of inputs or capital goods and outward transportation upto the place of removal. KSP Classes; PH : , [ Amendment Page - 3]

4 but excludes (A) construction, etc. of immovable property : the following specified services section 65(105)(p) of the Finance Act, 1994 [ Architects Services ]; section 65(105)(zn) [ Port Services ]; section 65(105)(zzl) [ Other Port Services ]; section 65(105)(zzm) [ Airport Services ]; section 65(105)(zzq) [ Commercial or Industrial Construction Service ]; section 65(105)(zzzh) [ Construction of Complex Service ]; and section 65(105)(zzzza) [ Works Contract Service ] in so far as they are used for (a) (b) construction of a building or a civil structure or a part thereof; or laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (B) services in relation to motor vehicles : the following services section 65(105)(d) of the Finance Act, 1994 [ General Insurance Service ]; section 65(105)(o) [ Rent-a-cab Scheme Operator Services ]; section 65(105)(zo) [ Authorised Service Station Service ]; and section 65(105)(zzzz) [ Supply of Tangible Goods for Use Service ], in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or (C) services for personal use of employees : services such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession. when such services are used primarily for personal use or consumption of any employee; KSP Classes; PH : , [ Amendment Page - 4]

5 Rule 3 CENVAT Credit Duties on which CENVAT Credit can be availed [Rule 3(1)] :- A manufacturer or producer of final products or a provider of taxable service shall be allowed to take CENVAT credit of the following duties paid on any inputs/capital goods received in the factory or input service received by the manufacturer/provider of output service : Basic Excise Duty leviable under the First Schedule to the Central Excise Tariff Act, 1985 (BED) [CENVAT] However, CENVAT credit of such duty of excise shall not be allowed to be taken when paid on any goods in respect of which the benefit of an exemption under notification No.1/2011 CE, dated the 1st March, 2011 is availed. [w.e.f ] (ii) (iii) (iv) (v) Special Excise Duty leviable under the Second Schedule to the Central Excise Tariff Act, 1985(SED) Additional Duty of Excise leviable under Section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 [All goods have been exempted from this duty of Excise]. Additional Duty of Excise leviable under Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (GSI) [Sec. 14 of CST Act]. National Calamity Contingent Duty leviable under Section 136 of the Finance Act, 2001(NCCD) (vi) Education Cess on excisable goods leviable u/s 93 of the Finance Act, 2004; (vii) Secondary and higher education cess on excisable goods of Finance Act, (viii) Additional Duty of Customs leviable under Section 3 of the Customs Tariff Act, 1975 equivalent to the duty of excise specified under clauses, (ii), (iii), (iv), (v) and (vi) & (via) above (CVD) However, CENVAT credit shall not be allowed in excess of 85% of the additional duty of customs paid u/s 3(1) of the Customs Tariff Act, on ships, boats and other floating structures for breaking up falling under tariff item of the First Schedule to Customs Tariff Act. [w.e.f ] KSP Classes; PH : , [ Amendment Page - 5]

6 Rule 3(7)(b) - Manner of utilization of Cenvat Credit for Payment of Duty on Final Product :- (15) Clean Energy Cess (CEC) : leviable u/s 83 of Finance Act, 2010 (It is being imposed w.e.f on production of coal, lignite and peat) Note : No credit of CEC is available under Rule 3(1), Further, credit of other duties cannot be used for payment of CEC. Hence, this amount has to be paid in cash. (16) Excise duty paid on any goods for which exem ption under N/N 1/2011 (dated ) is availed : CENVAT credit of any of the duties specified in Rule 3(1) shall not be utilized for payment of excise duty on any goods in respect of which exemption under Not. No. 1/2011-CE, dated is availed. [w.e.f ] Rule 3(5) No payment, if inputs removed outside factory for free warranty [w.e.f ] : No such payment shall be required to be made where any inputs are removed outside the factory for providing free warranty for final products. Rule 3(5B) :- If the value of any, (ii) input, or capital goods before being put to use. on which CENVAT credit has been taken is written off fully or partially [w.e.f ] or where any provision to write off fully or partially [w.e.f ] has been made in the books of account, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods; Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of taxable services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules. KSP Classes; PH : , [ Amendment Page - 6]

7 Rule 4(2) : CENVAT Credit on Capital Goods :- (a) The CENVAT credit in respect of capital goods received in a factory or in the premises of the provider of output service or Outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory, [w.e.f ] at any point of time in a given financial year shall be taken only for an amount not exceeding 50% of the duty paid on such capital goods in the same financial year. Rule 6 :- Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services Rule 6(1) :- As per Rule 6(1), the CENVAT credit shall not be allowed on such quantity of input used : in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used :- in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Rule 6(2) :- Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufacturers such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for (a) the receipt, consumption and inventory of inputs used in or in relation to the manufacture of exempted goods; (ii) in or in relation to manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and KSP Classes; PH : , [ Amendment Page - 7]

8 (b) the receipt and use of input services in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and (iv) for the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). Explanation I :- If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II :- For removal of doubt, it is hearby clarified that the credit shall not be allowed on inputs used exclusively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the Place of removal or for provision of exempted services. Explanation III :- No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services. Rule 6(3) :- Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely :- (ii) Pay an amount equal to 5% of value of exempted goods and exempted services; the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A). KSP Classes; PH : , [ Amendment Page - 8]

9 (iii) Separate accounts for inputs & Proportionate reversal for input services : maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in Rule 6(2)(a), t ake CENVAT credit only on input s under Rule 6(2)(a)(ii)/(iv); and (ii) pay an amount as determined in points (B) & (C) below in respect of input services. The provisions in sub-points and (ii) of points (B) & (C) below relating to inputs shall not apply for this payment. (3A) For determination and payment of amount payable under Rule 6(3)(ii), (a) (b) the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely :- Where the manufacturer or output service provider has opted for option II he should comply with the following procedures : Intimation to Superintendent of Central Excise : The manufacturer or output service provider shall intimate in writing to Superintendent of Central Excise giving following particulars - Name, address and registration no. of the manufacturer or output service provider; (ii) Date from which option is exercised or proposed to be exercised; (iii) Description of dutiable goods or taxable services; (iv) Description of exempted goods or exempted services; (v) CENVAT credit of inputs and input services lying in balance as on the date of exercising the option. For inputs used in manufacture of exempted goods : Amount of Cenvat credit attributable to inputs used in or in relation to manufacture of exempted goods. (ii) For inputs used for provision of exempted services : Amount of Cenvat Credit = Value of exempted services provided during the preceding financial year Value of dutiable goods manufactuered and removed plus value of taxable and exempted services provided during the preceding financial year x Cenvat credit taken on inputs during the month less amount of Cenvat credit attributable to inputs used in or in relation to manufacture of exempted goods. (iii) In case of input services used in or in relation to manufacture of exempted goods and their clearance up to the place of removal or for the provision of exempted services : Amount of Cenvat Credit = Value of exempted services provided plus value of exempted goods manufactured and removed during the preceding financial year Value of dutiable and exempted goods manufactured and removed plus value of taxable and exempted services provided during the preceding financial year x Cenvat credit taken on inputs services during the month KSP Classes; PH : , [ Amendment Page - 9]

10 (c) Computation of actual amount under Option II :- In case of Option II, the actual amount reversible for the whole year shall be the aggregate of the following - For inputs used in manufacture of exempted goods : Amount of Cenvat credit attributable to inputs used in or in relation to manufacture of exempted goods, on the basis of total quantity of inputs used in or in relation to manufacture of said exempted goods. (ii) For inputs used for provision of exempted services : Amount of Cenvat Credit = Value of exempted services provided during the F.Y. Value of dutiable goods manufactured and removed plus value of taxable and exempted services provided during the F.Y. x Cenvat credit taken on inputs during the F.Y. less amount of Cenvat credit attributable to inputs used in or in relation to manufacture of exempted goods. (iii) In case of input services used in or in relation to manufacture of exempted goods and their clearance up to the place of removal or for the provision of exempted services: Amount of Cenvat Credit = Value of exempted services provided plus value of exempted goods manufactured and removed during the financial year Value of dutiable and exempted goods manufactured and removed plus value of taxable and exempted services provided during the financial year x Cenvat credit taken on inputs services during the F.Y. (d) Payment of differential amount : Where - (e) (f) (g) (ii) the actual amount of Cenvat Credit (as computed as per (C) above) exceeds the aggregate of provisional amount of Cenvat Credit (as computed as per (b) above); or the provisional amount cannot be determined due to the reason that no taxable goods / services were manufactured / provided during the preceding financial year. then the manufacturer or output service provider shall pay the differential amount on or before 30th June of the succeeding financial year. If he fails to pay such amount on the due date, then, he has to pay such amount along with the 24% p.a. from the due date i.e. 30th June till the date of actual payment. Adjustment of the excess amount : Where the aggregate of provisional amount (as computed as per (b) above) exceeds the actual amount of Cenvat credit attributable (as computed as per (C) above), then, the manufacturer or output service provider shall adjust the excess amount, on his own, by taking credit of such amount. Information to the Jurisdiction Superintendent : Where the amount of Cenvat credit is shortly paid or paid in excess, the manufacturer or output service provider shall intimate to the jurisdictional Superintendent of Central Excise, within a period of 15 days from the date of payment or adjustment, the following particulars, namely - (ii) Details of provisional amount of CENVAT credit attributable to exempted goods and exempted services, month wise, for the whole year. Details of actual CENVAT credit attributable to exempted goods and exempted services for the whole financial year. KSP Classes; PH : , [ Amendment Page - 10]

11 (iii) Amount shortly paid along with the date of payment of the amount short-paid. (iv) Interest payable and paid, if any, on the amount short-paid. (v) Credit taken on account of excess payment, if any. Explanation I. - Value for the purpose of sub-rules (3) and (3A),- (a) (b) (c) shall have the same meaning as assigned to it under section 67 of the Finance Act, read with rules made there under or, as the case may be, the value determined under section 3, 4 or 4A of the Excise Act, read with rules made thereunder. in the case of a taxable service, when the option available under sub-rules (7), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994, or the Works Contract (Composition Scheme for payment of Service Tax) Rules 2007 has been availed, shall be the value on which the rate of service tax under section 66 of the Finance Act, read with an exemption notification, if any, relating to such rate, when applied for calculation of service tax results in the same amount of tax as calculated under the option availed; or in case of trading, shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or 10% of the cost of goods sold, whichever is more. Explanation II. - The amount mentioned in sub-rules (3), (3A), (3B) and (3C), unless specified otherwise, shall be paid by the manufacturer of goods or the provider of output service by debiting the CENVAT credit or otherwise on or before the 5th day of the following month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III. - If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3), (3A), (3B) and (3C), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken. Explanation IV. - In case of a manufacturer who avails the exemption under a notification based on the value of clearances in a financial year and a service provider who is an individual or proprietary firm or partnership firm, the expressions, following month and month of March occurring in sub-rules (3) and (3A) shall be read respectively as following quarter and quarter ending with the month of March. KSP Classes; PH : , [ Amendment Page - 11]

12 (3B) Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial institution including a non-banking financial company, providing taxable service specified in sub-clause (zm) of clause (105) of section 65 of the Finance Act, shall pay for every month an amount equal to 50% of the CENVAT credit availed on inputs and input service in that month. (3C) Notwithstanding anything contained in sub-rules (1), (2), (3) and (3B), a provider of output service providing taxable services as specified in sub-clauses (zx) and (zzzf) of clause (105) of section 65 of the Finance Act, shall pay for every month an amount equal to 20% % of the CENVAT credit availed on inputs and input services in that month. (3D) Payment of an amount under sub-rule (3) shall be deemed to be CENVAT credit not taken for the purpose of an exemption notification wherein any exemption is granted on the condition that no CENVAT credit of inputs and input services shall be taken. Rule 6(4) :- No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are fully exempted under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. Rule 6(5) :- Notwithstanding anything contained in sub-rules (1),(2) and (3). credit of the whole of service tax paid on specified taxable service shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. Rule 6(6) :- Credit allowed even if final product exempt :- The above provisions shall not be applicable in case the excisable goods removed without payment of duty are : (a) cleared to a unit in a Special Economic Zone (SEZ) or (ii) developer of a SEZ for their authorized operations or (iii) unit in an Electronic Hardware Technology Park or Software Technology Park or (iv) 100% EOU ; or (b) supplied to the United Nations or an International organization for their official use, or (ii) to projects funded by them, on which duty exemption is available; or KSP Classes; PH : , [ Amendment Page - 12]

13 (c) supplied for use of foreign diplomatic missions or consular missions or career consular offices or diplomatic agents, in terms of the provisions of the exemption notification governing them [w.e.f ] (d) cleared for export under bond under the provisions of the Central Excise Rules, (e) gold or silver falling within Chapter 71 of the First Schedule arising in the course of manufacture of copper or zinc by smelting; or (f) all goods which are exempt from the duties of customs (including additional duty of customs u/s 3(1) of Customs Tariff Act) when imported into India and are supplied, against International Competitive Bidding; or (ii) to a power project from which power supply has been tied up through tariff based competitive bidding; or (iii) to a power project awarded to a developer through tariff based competitive bidding. (6A) The provisions of sub-rules (1), (2), (3) and (4) shall not be applicable in case the taxable services are provided, without payment of service tax, to a Unit in a Special Economic Zone or to a Developer of a Special Economic Zone for their authorised operations. Rule 14 - Recovery of Credit wrongly taken :- In case the CENVAT credit has been taken or utilized wrongly or erroneously refunded, the same along with interest shall be recovered from the manufacturer or the provider of output service and the provisions of section 11A (recoveries of duties short paid or short levied) and 11AB (interest on delayed payment of duty) of the Central Excise Act, 1944, shall apply mutatis mutandis for effecting such recoveries. [Union of India vs Ind-Swift Laboratories Ltd (SC.)] KSP Classes; PH : , [ Amendment Page - 13]

14 CENVAT EXCISE RULES, 2002 Rule 12(1) of Central Excise Rules, 2002 Assessee is manufacturing processed yarn, Quarterly return in prescribed form within unprocessed fabrics falling under Chapter 50, 20 days after the close of the quarter to 51, 52, 53, 54, 55, 58 or 60 of First Schedule which it relates. to Tariff Act. An assessee availing of exemption under N/N. Quarterly return in prescribed form within 1/2011-CE, dated and does not 10 days after the close of the quarter to manufacture any other excisable goods other which it relates. than those specified in the said notification SMALL SCALE INDUSTRIES (e) Where the specified goods are in the nature of packing materials and are meant for use as packing material by or on behalf of the person whose brand name they bear. Explanation : For the removal of doubts, it is hereby clarified that packing material includes labels of all kinds. [w.e.f ] DEMAND & RECOVERY Interest on delayed payment of duty Section 11AB :- (a) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay the duty, or has paid the duty, shall, in addition to the duty, be liable to pay interest at such rate not below 10% and not exceeding 36% per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette. The rate notified by the Government at present is 18% p.a. [w.e.f ] KSP Classes; PH : , [ Amendment Page - 14]

15 New Definition of manufacturer or producer [Rule 2(naa)] With effect from , definition of manufacturer or producer has been substituted with the following new definition :- (a) (b) in relation to articles of jewellery or articles of goldsmiths or silversmiths wares of precious metals falling under heading 7113 or 7114 as the case may be, of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule(1) of rule 12AA of the Central Excise Rules, in relation to goods falling under Chapters 61, 62, 63 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, KSP Classes; PH : , [ Amendment Page - 15]

16 AMENDMENTS IN CUSTOMS Basic Concept Provisional Assessment of Duty Section 18 :- (3) The importer or exporter shall be liable to pay interest, on any amount payable to the CG, consequent to the final assessment 18% p.a. (before 13% p.a.) from the first day of the month in which the duty is provisionally assessed till the date of payment thereof. Packaged/Canned Software :- PACKAGED / CANNED SOFTWARE Where affixation of Retail Sale Price is mandatory Where affixation of Retail Sale Price is not mandatory Excise duty = u/s 4A (MRP Basis) Abatement = 15% MRP = Combined Values of the Software and licenses (right to use) Excise duty = u/s 4 Value = Transfer value Excluding the value representing consideration for transfer of right to use. Custom Duty = u/s 3(1) of the Customs Tariff Act Service Tax = Exempt Custom Duty = u/s 3(1) of the Customs Tariff Act Value = Transfer Value excluding the representing consideration for transfer of right to use Service Tax = Charged under the category of Information Technology Software Service Value = Consideration for transfer of right to use KSP Classes; PH : , [ Amendment Page - 16]

17 SERVICE TAX Service Tax (Determination of Value) Rules, 2006 Rule 5 - Inclusion in or exclusion from value of certain expenditure or costs - (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expnditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. Telecommunication Service Value shall be the gross amount paid by recipient of service [Explanation inserted W.E.F ] : For the telecommunication services (section 65(105)(zzzd)), the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority. Rule 4A of Service Tax Rules, 1994 Issue of Invoice by Service Provider and Input Service distributor (1) Issue of Invoice by Service Provider - Every Person providing taxable services should prepare invoice in respect of his service. The Invoice should be prepared within 14 days from date of completion of taxable service or receipt of payment towards the value of taxable service, whichever is earlier. The Invoice/challan/Bill should be signed by authorized person of provider of services and such invoice etc. shall be serially numbered and shall contain the following particulars (a) the name, address and registration nmber of such person, (b) the name and address of the person receiving taxable services, (c) description, classification and value of taxable service provided or to be provided, and (d) the service tax payable thereon. KSP Classes; PH : , [ Amendment Page - 17]

18 Key Note : (ii) (iii) (iv) In case of banking and other financial services : The Invoice/Bill/Challan may not be serially numbered and may not contain and address of the person receiving taxable service, but, must contain other information as specified above. In case of transport of goods by road (goods transport agency s service) : In addition to the aforesaid information, the invoice bill / challan should contain the details of the consignment note number and date; and gross weight of the consignment. In case of provider of taxable service is aircraft operator providing the service of air transport of passenger [w.e.f ] : The invoice/bill/challan shall include ticket in any form by whatever name called and whether or not containing registration number of the service provider, classificaiton of the service received and address of the service receiver but containing other information in such documents as required above. In case of continuous supply of service, every person providing such taxable service shall issue and invoice, bill or challan, as the case may be, within fourteen days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed. [w.e.f ]. Rule 6 of Service Tax Rules, 1994 (4B) Adjustment under (4A) shall be possible only if the following conditions are satisfied. (ii) (iii) the excess amount paid is not on account of reasons involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification. excess amount paid by assessee having centralized registration, because of delayed receipt of details of payments can be adjusted without any limit. for others the maximum amount that can be adjusted is ` 2,00,000 for a relevant month or quarter. (iv) the details of such adjustment shall be intimated to Superintendent within 15 days from the date of such adjustment. Recovery of self-assessed service tax, if not paid in full or in part [Rule 6(6A), w.e.f ]: Where an amount of service tax payable has been self-assessed u/s 70(1), but not paid, either in full or part, the same, shall be recoverable alongwith interest in the manner prescribed u/s 87. Thus, in case of non-payment of self-assessed tax, there will be not need to first issue show-cause notice u/s 73 of the Act and, then, recover the tax, direct recovery of tax has been permitted. KSP Classes; PH : , [ Amendment Page - 18]

19 Interest on Amount Collected in excess Section 73B :- Where an amount has been collected, in excess of the tax assessed and paid, for any taxable service from the recipient of such service, the person who is liable to pay such amount shall, in addition to the amount, be liable to pay interest. The interest shall also be payable by the person who has collected any amount, which is not required to be collected as service tax. The interest shall be payable at the rate of 18% per annum (before at 13% p.a.) from the first day of the month succeeding the month in which the amount should have been paid till the date of payment of such amount. Where such amount is reduced or increased in appeal, the interest payable thereon shall be on such reduced or increased amount Interest on late payment of service tax Section 75 :- If the service tax is paid after the due date, simple interest is 18% per annum (before at 13% p.a.) for late payment of tax u/s 75 for the period of delay. This payment is mandatory and there is no provision to waive interest on delayed payment. Interest is paid for the period of delay and not for the whole month. If delay is for 10 days, interest will be paid for 10 days only. Period of delay is counted from the first day after the due date till the actual payment of service tax is made. Special rate for payment of Service Tax :- Life Insurance Service Means : An insurer or Re-insurer carrying on life insurance business. Options to Pay Service Tax : An insurer carrying on life insurance business liable for paying service tax in relation to the risk cover in life insurance provided to a policy holder shall have the option to pay service 1.5% plus Education cess & SHEC of the gross amount of premium charged by such insurer. Key Note :- (1) The option shall be payable only in relation to composite policy (which consist of risk as well as saving components in insurance premium). KSP Classes; PH : , [ Amendment Page - 19]

20 Taxable Services (3) Banking & Other Financial Services Means : A Banking Company A Financial Institution (including a NBFC) Any other Body Corporate Any Other Person Includes : (a) The following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporat e or commercial concern, namely- (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) Financial Leasing Services (including equipment leasing and hire-purchase). Merchant Banking Services; Securities and foreign exchage (forex) broking, and pruchase or sale of foreign currency, including money changing; Asset management services (including portfolio management) Advisory and other auxiliary services (including investment and portfolio research and advice) Provision and transfer of information and data processing; Banker to an issue service; Other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts. The activity of chit funds, which is in the nature of cash management. Services provided in relation to purchase or sale of foreign currency by a foreign exchange broker, money changer and authorised dealer of foreign exchange shall also be leviable to service tax. KSP Classes; PH : , [ Amendment Page - 20]

21 (b) Foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or a authorised dealer in foreign exchange or an authorised money changer, other than those covered under (a) above. Determination of value of service in relation to money changing [Rule 2B of the Service Tax (Determination of Value) Rules, 2006; W.E.F ] : Subject to the provisions of section 67, the value of taxable service provided, so far as it pertains to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner :- for a currency, when exchanged from, or to, Indian Rupees (INR) : Value = Difference in the buying rate or selling rate and the RBI reference rate for that currency at that time Total units of currency. Example 1 Purchase of foreign currency by money-changer : US$1000 are sold by a customer at the rate of ` 45 per US$ RBI reference rate for US$ ` at that time. The taxable value = (RBI Rate Buying Rate) No. of units of foreign currency bought = (` 45.5 ` 45) per US$ 1000 US$ 1000 US$ = ` 500. Example 2 Sale of foreign currency by money-changer : INR is changed into Great Britain Pound (GBP) The exchange rate offered is ` 70, thereby giving GBP RBI reference rate at that time for GBP is ` 69. The taxable value = (Selling Rate RBI Rate) No. of units of foreign currency sold = (` 70 ` 69) per GBP 1000 GBP = ` 1,000. If no RBI rate available, Value = 1% of INR : In case where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money. KSP Classes; PH : , [ Amendment Page - 21]

22 (b) In case where neither of the currencies exchanged is Indian Rupee (i.e. One foreign currency is exchanged for another foreign currency) : Value shall be computed as follows Amount 1 = Foreign Currency sold RBI Reference Rate of that currency to Indian rupees at that time Amount 2 = Foreign Currency Bought RBI Reference Rate of that currency to Indian rupees at that time Gross Indian Rupees - Amount 1, or Amount 2, whichever is less Value = 1% of the Gross Indian Rupees xxx xxx xxx xxx Money-changing services provided by a foreign exchange broker - Option to discharge service tax at specified percentage of gross amount of currency exchanged [Rule 6(7B) of Service Tax Rules, 1994, AMENDED W.E.F ] : The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorized moeny changer shall have the option to pay an amount calculated at the following rate towards discharge of his service tax liability instead of paying service tax at the rate specified in section % of the gross amount of currency exchanged for an amount upto ` 1,00,000, subject to the minimum amount of ` 25; and (ii) ` % of the gross amount of currency exchanged for an amount of rupees exceeding ` 1,00,000 and upto ` 10,00,000; and (iii) ` % of the gross amount of currency exchanged for an amount of rupees exceeding ` 10,00,000, subject to maximum amount of ` 5,000. Option once exercised to apply for that financial year and not to be withdrawn : The person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year. Excludes : Any services provided to Govt. of India or state govt. in relation of collection of any duties or taxes levied by such govt. shall be exempt. (ii) Value of taxable service provided in relation to - overdraft facility; cash credit facility; or KSP Classes; PH : , [ Amendment Page - 22]

23 discounting of bills, bills of exchange or cheques, equal to interest on such overdraft, cash credit or, discount, shall be exempt if shown separately. Exemption : Financial Leasing - On the interest charged for equipment leasing & hire purchase - 90% exemption. (ii) (iii) Chit-business- 30% abatement. Sale and purchase of Foreign currency for transactions between banks/money-changers: The taxable service provided to any bank, including a bank located outside india, or money changer, by any other bank or money changer in relation to inter-bank transactions of purchase and sale of foreign currency, is exempt. (12) Transport of Passengers for Journey (Domestic or International) by Air Taxable Service [Section 65(105)(zzzo)] : Means : provided or to be provided to any passgenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for domestic journey or international journey. Exemption : Travel by Air service Exemption to in-transit international passenger and other specified persons w.e.f [Notification No. 25/2010-S.T.] : The taxable service of air transport of passengers, in respect of persons specified below, is exempt from the whole of the service tax leviable thereon under section 66 of the Finance Act (a) a person who has arrived at a customs airport from a place outside India and is in transit through India, provided that he does not pass through immigration and does not leave customs area and continues his journey to a place outside India; and (b) a person employed or engaged by the aircraft operator in any capacity on board the aircrafts; KSP Classes; PH : , [ Amendment Page - 23]

24 (ii) Travel by Air service Exemption providing effective rate for domestic journey in any class and international journey in economy class w.e.f [Notification No. 26/2010-S.T., dated ] : The taxable service is exempt from so much of the service tax as is in excess of Case (a) for passengers travelling in economy class, within India; (b) for passengers embarking in India for an international journey in economy class Service Tax payable (net of exemption) 10% of the gross value of the ticket or ` 150 per journey, whichever is less 10% of the gross value of the ticket or ` 750 per journey, whichever is less In other words, after exemption, the service tax shall be payable at the rate specified in above table. Exemption only if CENVAT credit not availed : This exemption shall not apply in cases where the credit of duty paid on inputs used for providing such taxable service has been taken under the provisions of the CENVAT Credit Rules, (iii) Travel by Air service Exemption to passengers from/to North East and Baghdogra [w.e.f ]. Note : Economy Class : For the purposes of this notification, economy class in a aircraft means, (a) where there is more than one class of travel, the class attracting the lowest standard fare; or (b) where there is only one class of travel, that class. (ii) Exclusion from Value [Rule 6(2)(v)] of the Service Tax (Determination of Value) Rule 2006: The value of any taxable service, as the case may be, does not include the taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger. (iii) International journey : International journey, in relation to a passenger, means his journey from any customs airport on board any aircraft to a place outside India. (iv) Passenger : Passenger, means any person boarding an aircraft in India for performing domestic journey or international journey. KSP Classes; PH : , [ Amendment Page - 24]

25 (19) Works Contract Service Means : A contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and (ii) such contract is for the purposes of carrying out - (a) erection, commissioning or installation of plant, machinery, equipment or structures. (b) construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit. (c) construction of a new residential complex or a part thereof; or (d) completion and finishing services, repair, alteration, renovation or restoration. (e) turnkey projects. Includes : Service provided or to be provided to any person, by any other person in relation to the execution of a works contract. Excludes: works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. Exemption : Execution of a works contract in respect of canals, other than those primarily used for the purposes of commerce or industry, exempts from the whole of service tax. Service Tax (Determination of Value) Rules, 2006 Rule 2A Valuation of works contract service- The value of taxable service in relation to services involved in the execution of a works contract shall be determined by the service provider in the following manner- Value of works contract service = Gross amount charged for the works contract less Value of transfer of property in goods involved in the execution of the said works contract. Note: For the purposes of the above formula,- (1) Value of transfer of property in goods involved in execution of works contract: Where value Added Tax or sales tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax or sales tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract. (2) Gross amount charged: Gross amount charged for the works contract shall not include value added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract; KSP Classes; PH : , [ Amendment Page - 25]

26 (3) Value of works contract service: Value of works contract service shall include,- (a) (b) (c) labour charges for execution of the works; amount paid to a sub-contractor for labour and services; charges for planning, designing and architect s fees; (d) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; (e) (f) (g) (h) cost of consumables such as water, electricity, fuel, used in execution of works contract; cost of establishment of the contractor relatable to supply of labour and services; other similar expenses relatable to supply of labour and service; and profit earned by the service provider relatable to supply of labour and services No CENVAT credit of duty paid on goods, which do not form part of value of taxable service: Since value of works contract service does not include the value pertaining to transfer of property in goods involved in the execution of a works contract livable to VAT/sales tax, therefore, a works contract service provider is not eligible to take credit of excise duty paid on such goods. CENVAT credit of full service tax paid on certain construction related services To be allowed only upto 40% thereof [Rule 3(2A), W.E.F ] : The CENVAT credit of tax paid on taxable services as refferred to under Section 65(105)(zzd) Erection, Commissioning & Installation Service; (ii) Section 65(105)(zzq) Commercial or Industrial Construction Service; and (iii) Section 65(105)(zzzh) Construction of Complex Service, shall be available only to the extent of 40% of the service tax paid when such tax has been paid on the full value of the service after availing CENVAT credit on inputs. Special rate for payment of Service tax :- Composition 4% of gross amount charged [works contract (Composition Schemen for payment of Service Tax) Rules, 2007]: These rules provide for composite payment of service tax. The person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liablility on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount exuivalent to 4% of the gross amount charged for the works contract. KSP Classes; PH : , [ Amendment Page - 26]